Before the foreclosure crisis, which peaked in 2010, federal and state laws regulating mortgage servicers and foreclosure procedures were relatively limited and tended to favor foreclosing lenders. However, federal and state laws now heavily regulate loan servicing and foreclosure processes. And most of the laws give protections to borrowers.
Servicers generally have to provide borrowers with loss mitigation opportunities, account for each foreclosure step, and strictly comply with foreclosure laws. Also, most people who take out a loan to buy a residential property in Washington sign a promissory note and a deed of trust, which is like a mortgage. These documents give homeowners some contractual rights in addition to federal and state legal protections.
So, don't get caught off guard if you're a Washington homeowner behind in mortgage payments. Learn about each step in a Washington foreclosure, from missing your first payment to a foreclosure sale.
Once you understand the process, you can make the most of your situation and, hopefully, work out a way to save your home or at least get through the process with as little anxiety as possible.
In a Washington foreclosure, you'll most likely get the right to:
The period after you fall behind in payments, but before a foreclosure officially starts, is generally called the "preforeclosure" stage. (Sometimes, people refer to the period before a foreclosure sale actually happens as "preforeclosure," too.)
During this time, the servicer can charge you various fees, like late charges and inspection fees, and, in most cases, must inform you about ways to avoid foreclosure and send you a preforeclosure notice called a "breach letter."
If you miss a payment, most loans include a ten or fifteen-day grace period, after which time the servicer will assess a late fee. Each month you miss a payment, the servicer will charge this fee. To find out your loan's late charge amount and grace period, look at the promissory note you signed. You can also find this information on your monthly mortgage statement.
Also, most Washington deeds of trust allow the lender (or the current loan holder, referred to as the "lender" in this article) to take necessary steps to protect its interest in the property. Property inspections are performed to ensure that the home is occupied and appropriately maintained. Inspections, which are generally drive-by, are usually ordered automatically once the loan goes into default and typically cost around $10 or $15.
Other types of fees the servicer might charge include those for broker's price opinions, which are like appraisals, and property preservation costs, such as for yard maintenance or winterizing an abandoned home.
Under federal mortgage servicing laws, the servicer must contact, or attempt to contact, you by phone to discuss loss mitigation options, like a loan modification, forbearance, or repayment plan, no later than 36 days after you miss a payment and again within 36 days after each following delinquency. (12 C.F.R. § 1024.39).
No later than 45 days after missing a payment, the servicer has to inform you in writing about loss mitigation options that might be available and appoint personnel to help you try to work out a way to avoid foreclosure. A few exceptions are in place for some of these requirements, though, like if you've filed bankruptcy or asked the servicer not to contact you under the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39, 12 C.F.R. § 1024.40).
Federal mortgage servicing laws also prohibit dual tracking (pursuing a foreclosure while a complete loss mitigation application is pending).
Many Washington deeds of trust have a provision that requires the lender to send a notice, commonly called a "breach letter," informing you that the loan is in default before the lender can accelerate the loan. The breach letter allows you to cure the default and avoid foreclosure.
Under federal law, the servicer usually can't officially begin a foreclosure until you're more than 120 days past due on payments, subject to a few exceptions. (12 C.F.R. § 1024.41). This 120-day period provides most homeowners ample opportunity to submit a loss mitigation application to the servicer.
If you default on your mortgage payments in Washington, the lender may foreclose using a judicial or nonjudicial method.
A judicial foreclosure begins when the lender files a lawsuit asking a court for an order allowing a foreclosure sale. If you don't respond with a written answer, the lender will automatically win the case.
But if you choose to defend the foreclosure lawsuit, the court will review the evidence and determine the winner. If the lender wins, the judge will enter a judgment and order your home sold at auction.
If the lender chooses a nonjudicial foreclosure, it must complete the out-of-court procedures described in the state statutes. After completing the required steps, the lender can sell the home at a foreclosure sale.
Most lenders in Washington opt to use the nonjudicial process because it's quicker and cheaper than litigating the matter in court.
Again, most residential foreclosures in Washington are nonjudicial. Here's how the process works.
In most cases, the foreclosing lender has to contact you (the borrower) or meet the requirements for attempting to contact you, at least 30 days before issuing a notice of default (see below). This requirement applies to residential properties of up to four units. (Wash. Rev. Code § 61.24.031).
You'll get a notice that informs you of your right to a "meet and confer" with the servicer of your loan, which means you can ask for an in-person meeting to discuss loss mitigation options. If you respond within 30 days, the lender can't issue a notice of default until 90 days after sending the letter. But if you don't ask for a meeting, the lender can proceed with the foreclosure 30 days after satisfying certain requirements, like trying to contact you by phone. (Wash. Rev. Code § 61.24.031).
If you don't respond to the letter or work out a way to avoid foreclosure, a notice of default is served on you 30 days before a notice of sale is recorded or served. The notice of default must be served by both first-class mail and by registered or certified mail, return receipt requested, and by either posting the notice on the premises in a prominent place or by personal service. (Wash. Rev. Code § 61.24.030).
Once the notice of default has been issued, the homeowner becomes eligible for mediation. Homeowners aren't able to opt-in to the mediation program without a referral. To request mediation, you must contact a housing counselor or attorney who will provide a referral to the program, if appropriate for the situation. Mediation must be requested between the time the notice of default is issued and no later than twenty days after the notice of sale is recorded. (Wash. Rev. Code § 61.24.030, § 61.24.163).
If you don't elect mediation within this time frame, you and the lender may (but aren't obligated to) agree in writing to enter the mediation program. If the homeowner is referred to mediation before the notice of sale is recorded (see below), the notice can't be recorded until mediation is complete. (Wash. Rev. Code § 61.24.163).
If the lender doesn't mediate in good faith, you might be able to stop the foreclosure sale in court. (Wash. Rev. Code § 61.24.163).
The trustee issues a notice of sale, records it, mails you a copy, and posts it on the property (or serves the home's occupant a copy) at least 90 days, or 120 days (depending on the situation), before the sale date. The notice of sale must also be published in a newspaper. (Wash. Rev. Code §§ 61.24.040, 61.24.030).
Under state law, the lender can't hold the sale less than 190 days after the date of default. (Wash. Rev. Code § 61.24.040).
At the sale, the lender usually makes a credit bid. The lender can bid up to the total amount owed, including fees and costs, or it may bid less. In some states, when the lender is the high bidder at the sale but bids less than the total debt, it can get a deficiency judgment against the borrower. In Washington, deficiency judgments usually aren't allowed.
If the lender is the highest bidder, the property becomes "Real Estate Owned" (REO). But if a bidder, say a third party, is the highest bidder and offers more than you owe, and the sale results in excess proceeds—that is, money over and above what's needed to pay off all the liens on your property—you're entitled to that surplus money.
The purchaser at the sale is entitled to possession of the property on the 20th day after the sale. (Wash. Rev. Code § 61.24.060).
A few potential ways to stop a foreclosure include reinstating the loan, redeeming the property before the sale, or filing for bankruptcy. (Of course, if you're able to work out a loss mitigation option, like a loan modification, that will also stop a foreclosure.)
Washington law provides you with the right to reinstate your loan at any time prior to the 11th day before the sale. (Wash. Rev. Code §§ 61.24.040, 61.24.090).
One way to stop a foreclosure is by "redeeming" the property. To redeem, you have to pay off the full amount of the loan before the foreclosure sale.
Some states also provide foreclosed borrowers a redemption period after the foreclosure sale, during which they can buy back the home. Washington law, however, doesn't provide a post-sale redemption period after a nonjudicial foreclosure. (Wash. Rev. Code § 61.24.050).
If you're facing a foreclosure, filing for bankruptcy might help. In fact, if a foreclosure sale is scheduled to occur in the next day or so, the best way to stop the sale immediately is by filing for bankruptcy.
Once you file for bankruptcy, something called an "automatic stay" goes into effect. The stay functions as an injunction, which prohibits the lender from foreclosing on your home or otherwise trying to collect its debt, at least temporarily.
In many cases, filing for Chapter 7 bankruptcy can delay the foreclosure by a matter of months. Or, if you want to save your home, filing for Chapter 13 bankruptcy might be the answer. To find out about the options available to you, speak with a local bankruptcy attorney.
In a foreclosure, the borrower's total mortgage debt sometimes exceeds the foreclosure sale price. The difference between the total debt and the sale price is called a "deficiency."
For example, say the total debt owed is $600,000, but the home sells for $550,000 at the foreclosure sale. The deficiency is $50,000. In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount—in our example, $50,000—from the borrower.
In Washington, the lender can't get a deficiency judgment after a nonjudicial foreclosure. (Wash. Rev. Code § 61.24.100).
In this article, you'll find details on foreclosure laws in Washington, with citations to statutes so you can learn more. Statutes change, so checking them is always a good idea.
If you're looking for federal laws, you might want to visit the Library of Congress's legal research website, which provides links to federal regulations and federal statutes.
To find Washington's laws, search online for "Washington statutes" or "Washington laws." Make sure you're reading the most recent, official laws. Usually, the URL will end in ".gov" or the statutes will be on an official state legislature webpage.
For more information on federal mortgage servicing laws, as well as foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
Although the programs under the Making Home Affordable (MHA) initiative have expired, the MHA website still contains useful information for homeowners facing foreclosure.
How courts and agencies interpret and apply laws can change. And some rules can even vary within a state. These are just some of the reasons to consider consulting a lawyer if you're facing a foreclosure. If you have questions about Washington's foreclosure process or want to learn about potential defenses to a foreclosure and possibly fight the foreclosure in court, consider talking to a foreclosure attorney.
It's also a good idea to talk to a HUD-approved housing counselor if you want to learn about different loss mitigation options. You can use the CFPB's Find a Counselor tool to get a list of HUD-approved housing counseling agencies in your area. You can also call the Homeownership Preservation Foundation (HOPE) Hotline, which is open 24 hours a day, seven days a week, at 888-995-HOPE (4673).
Start here to find foreclosure lawyers near you.